Barratt Developments Plc has turned to the private rental sector in a bid to earn more cash as a collapse in first-time buyer sales weighs on Britain’s housing market.
Barratt’s average weekly private net sales rate since late April included a much larger contribution from the private rental sector and social housing than a year ago, the developer said in a statement Thursday. The company said it was “driving revenue through the use of private rental sector sales” while disruption plays out in the housing market.
First-time buyer bookings accounted for more than half of the decline in total reservations, with the rate sliding to 0.55 in the year ended June, Barratt said. That’s almost a third short of the 0.81 average for the same period a year earlier, with the firm noting a “significant deterioration in demand during the second quarter.”
“The trading backdrop has become more challenging in recent months, with many of our customers facing significant cost of living pressures” Chief Executive Officer David Thomas said in the statement.
UK households are facing an avalanche of pressures triggered by rising interest rates and the worst cost-of-living crisis in a generation. Key mortgage rates have continued to rise after breaching 6% this summer. The Bank of England warned that some 4 million households will face a sharp increase in mortgage costs, with the average borrower paying almost £3,000 ($3,900) a year more.
Barratt is the latest to join rivals including Persimmon Plc and Taylor Wimpey Plc to warn of a collapse in first-time buyer sales following the end of the Help-to-Buy program. The three companies collectively built more than 45,000 homes in 2022.
Barratt fell as much as 5.4% on Thursday, making it the biggest loser on the Stoxx 600 Index. The shares were down 5.1% as of 9:51 a.m. in London.
What Bloomberg Intelligence Says:
“Barratt’s trading commentary suggests a dire fiscal 2024 due to higher interest rates. 2024 completions are expected to fall 20%, even after bulk deals, while its backlog’s average selling price fell 8.7%.”
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Still, Barratt said it expects to deliver full-year profit before tax in line with current market expectations. That’s on the back of its average weekly private net sales rate rising slightly since late April, and increased reservations in the private rental sector.
“During a year of economic and political uncertainty, we have delivered a strong operational and financial performance,” Barratt’s Thomas added. “We are ready to respond to any further changes in the housing market.”
(Updates with shares in the seventh paragraph and an analyst comment in the eighth.)
